Thursday, March 16, 2017

Another installment in the ongoing series Why Businesses Fail

Also known as The Stupid, It Burns.

A while back the good people of Arizona approved a ballot proposal to raise the state minimum wage. Proposition 206 mandated that the state minimum wage, which had been set at $8.05 per hour, would increase to $10 in 2017 and will be raised incrementally to $12 per hour by the year 2020. If Proposition 206 hadn't passed, the minimum wage would still have gone up this year but only by a dime to $8.15. Arizona law already requires, thanks to a proposition approved in 2006, that minimum wage be adjusted annually for increases in the cost of living.

Naturally, many business owners had the usual reaction to this change in the law. They freaked out. They did a lot of posturing about how it was going to drive them out of business while all sounding as if each was a special case subjected to increased costs that none of their competitors had to deal with. This is typical. I've blogged about it before. The self-centered business owner totally ignores that fact that if he's having to pay his dishwashers or his widget assemblers an additional $1.95 per hour, so are his competitors down the street. The competitive playing field is still level; no one business has suddenly gained or lost an advantage over any other. It may be true that in the short term he or she will have to eliminate a position or two while they figure out how to compensate for the added expense in payroll, but it's going to be equally true that every other business is going to be doing the same thing.

So how have various businesses responded? Well, I've noticed a couple interesting examples lately of What Not to Do. Both examples are restaurants. In the case of one, a steakhouse, they've tacked on an 18% surchange to every meal to, as they helpfully explain, help pay for the increase in the minimum wage. Holy wah, the stupid, it burns.

You're telling me that because you're now paying the dishwashers in the kitchen $10 an hour instead of $8.05, my $25 steak dinner is now going to cost me $29.50? Joe Shmoe washing dishes gets an additional $1.95; No Longer Loyal Customer gets hosed to the tune of $4.50. It doesn't take a math genius to figure out that charging every customer in the place an 18% surcharge goes way beyond compensating for a higher payroll cost. Plus, of course, no one particularly enjoys hearing a business owner whine about being so frelling stupid that they can't figure out a way to cover added expenses without standing up and screaming to the world that they're asshats who would prefer to pay their employees nothing at all if only they could figure out a way to get away with it.

Second example: ate at a local place that has a lot of vaguely Mexican food on the menu. I say vaguely Mexican because Safford has apparently suffered from the influence of having way too many snowbirds with timid tastebuds wintering around here. So far all the "Mexican" places we've tried have served salsa made with chilis that seemingly achieve the impossible: score a negative number on the Scoville scale. But I digress. Naturally, the establishment of which I speak does the bowl of corn chips and some salsa as an automatic freebie on the tables. Except the chips and salsa are no longer free. The server made a point of saying that if we wanted a second bowl, we'd have to pay for them. They've also stopped doing free refills on drinks. Why? Because minimum wage went up. Not quite as annoying or as in your face as the surcharge, but still annoying, particularly when the astute diner recognizes that chips and soft drinks are some of the items on the menu with the highest profit margins. A throw-away cup for a soft drink costs the restaurant more than the soda it contains. It costs the restauranteur literally pnnies to refill your Coke when the glass runs dry.

In any case, what the restaurant has done is taken two of the most visible and cheapest ways to curry customer good will (endless chips and free refills on soft drinks and coffee) and eliminated them, a truly dumb move when the competition hasn't done something similar. Again, the stupid, it burns.

So how would I, the ominiscient blogger, have dealt with the increased labor costs? First, of course, I'd have kept my mouth shut. Second, I'd have started preparing for it as soon as I heard the proposition passed and made various adjustments to the menu accordingly. No doubt some business owners were indulging in a fantasy that the state supreme court would rule the change illegal, but that hasn't happened, at least not yet. Besides, it was inevitable that wages would climb. Anyone thinking they'd stay static was living in a dream world.

Anyway, shifting prices up slightly across the board -- 50 cents here, maybe a dollar there -- would be a lot less noticeable than a huge honking extra charge tacked on at the end. People willing to pay $20 for a rack of ribs or a steak aren't suddenly going to turn vegan if the price shifts to $21.50. Look for stuff you can eliminate. From watching Gordon Ramsey in action I know way too many restaurants waste food. They provide side salads no one eats and serve portions that are much bigger than they need to be. (Which could be the subject of a different rant: the unrealistic ideas people end up with concerning healthy serving sizes based on what they see heaped on some restaurant plates.)

A small example of eliminating waste: we've eaten at a couple of places locally that do the usual salsa and chips but with a small twist. They bring you the basket of chips and a small bowl. The salsa is in squeeze bottles so you can use as little or as much as you wnat; definite reduction in waste there. For that matter, restaurants could eliminate the chips and salsa entirely. People munch on them when the chips are staring them in the face, but quite a few wouldn't care if they vanished. It's always struck me as a little weird that restaurants would put out a free appetizer while also having half a dozen other types of appetizers listed on the menu.

I am thinking that I'll ask The Younger Daughter to keep an eye on how those particular businesses fare over the coming year. It'll be interesting to see if they're still around a few months from now. Their floundering attempts suggest their days are numbered, but you never know. Sometimes even the most inept business owners manage to survive despite their best attempts to destroy themselves.

As for finding some Mexican food that isn't so bland it could be served in nursing homes, I'm beginning to think that we'll have to venture south of the border. The Younger Daughter tells me that co-workers have mentioned there are good restaurants in Agua Prieta, although I'm not sure it's worth the hassle to go that far.